 Income Tax 2021-2022, Child Independent Care Expenses Credit Lined Instructions Part Number 2. Get ready to get refunds to the max diving into Income Tax 2021-2022. Most of this information can be found in the Form 1040 Instructions Tax Year 2021 IRS Website IRS.gov IRS.gov The income tax formula we're down here in the credit area noting that credits and deductions both good but a dollar credit versus a dollar deduction. The credit typically being better because you get the full amount of the dollar credit as opposed to the dollar of deduction decreasing taxable income which would then be the tax calculated upon it. The credits often have two categories, those being the non-refundable credits and the refundable credits. Non-refundable means it's not going to take the tax liability below zero. The refundable credit means that it may and if it were to take it below zero then you might get a quote refund which isn't really a refund in that case it would be more like a benefit program at that point in time. Some credits might have a non-refundable portion to it and a refundable portion to it. This is page 2 of the Form 1040 looking at Line 31. The credit would roll into Schedule 3 and then often roll in here to Line 31. This is the Form 2441 Child and Dependent Care Expenses Form that will be concentrating on here. We're now looking at Line 2 of the Form 2441. Complete columns A through C for each qualifying person. If you have more than three qualifying persons, check the box on Line 2 and attach a statement to your return with the required information. So here's the form. We're focusing down here on Part Number 2, Credit for Child and Dependent Care Expenses. So we put the information for who we paid up top here in Part 1. Now we're looking at Part 2 where we have Part 2A, Qualifying Person's Name. Typically this is going to be pulled from the Dependent so you'll typically see this on the 1040 Page 1. You've got your Dependents here and whichever Dependent that you're paying for then with these expenses then would be pulled in to the Form Part Number 2. First Name, Last Name, Qualifying Person's Social Security Number and the Qualified Expenses here. So we've got the Qualified Expenses down here and then we've got the list of organizations that we paid for. So note that you might have a situation where you paid multiple different institutions up top or people or institutions for the care up top. And then down below you could have one or more person that the expenses were paid for. So these two things, those are the two sides of kind of the coin that we're looking at as we fill out this form for the payments. So then we've got Be Sure to Put Your Name and Social Security Number, the SSN on the statement. In this section all the lines, all the lines on line 2 of Form 2441 must be completed with information for the three people with the highest qualifying expenses. Attach statement must provide the same information for the additional qualifying people not listed on the form. So you've got three spaces for three people that you spent qualifying money on and if you need more than that then you've got to attach something to the form. The attached statement may optionally include the full list of qualifying people including the ones already listed on the form, but you should indicate which qualifying people listed on the statement are also listed on the form. Column B, you must enter the qualifying person's SSN. So you've got to have the Social Security Number for the person and so you'll typically have that because they will often be like a dependent. Be sure the name and Social Security Number entered agree with the person's Social Security Card otherwise at the time that we process your return we may reduce or disallow your credit if the child was born and died in 2021 and didn't have an SSN. Enter died in Column B and attach a copy of the child's birth certificate, death certificate or hospital medical records to find out how to get an SSN see Social Security Number the SSN and the instructions for form 1040. If the name or SSN Social Security Number on the person's Social Security Card isn't correct call the Social Security Administration. If the qualifying person has an individual taxpayer identification number an I-10 or adoption taxpayer identification number an A-10 you can see the taxpayer identification number in Publication 503 you can find on the IRS website. Column C, enter the qualified expenses you incurred and paid in 2021 for the person listed in Column A. If you completed Part 3 don't include in Column C any benefits shown on Line 28. So when we look at that component if we look at Part 3 then that's going to be then here on Page 2 and that's the dependent care benefits that we'll take a look at. So once again if we go back on over we're focusing here on Part Number 2 Column C at this point in time. So once again enter the qualified expenses you incurred and paid in 2021 for the person listed in Column A. If you complete Part 3 don't include the Column C any benefits shown on Line 28. Don't include Column C the following qualified expenses. So expenses you incurred in 2020 but didn't pay until 2021 so you got that kind of cut off situation. Instead you can look at the instructions for Line 9B in that instance. Expenses you incurred in 2021 but don't pay until 2022 you may be able to use these expenses to increase your 2022 credit in that case. We got this kind of cut off date issue. Expenses you prepaid in 2021 for the care to be provided in 2022. So the IRS is often going to be skeptical of this kind of prepayment situation as well. So again you got this kind of cut off thing. So these expenses can only be used to figure your 2022 credit. So you can't really say I'm going to pay in advance for the next five years of the expenses and try to take the credit calculation in the current year or something like that. So Column C continued to qualify for the credit. You must have one or more qualified persons. You should show the expenses for each qualified person in Column C of Line 2. The minimum amount of work related expenses you can take into account for purposes of the credit is $16,000 if you have two or more qualified persons. Even if you only incurred expenses for just one of them. So that's the maximum amount I should say. So the maximum amount of work related expenses you can take into account for purposes of the credit is $16,000 if you have two or more qualified persons. even if you only incur expenses for just one of them. So in other words, if I jump back on over to the forum and I have the one individual here, you can see on line three, which says add the amounts in column C of line two, don't enter more than 8,000. If you had one qualifying person or 16,000, if you had two or more persons at this point. So we've got the one person, I put the qualifying expenses at 20, but we've got the cap at the eight in this case. So back on over, then we're gonna say, for example, if you have two qualifying children, a one age three and one age 11, and you incur $16,000 of qualifying related expenses for the three year old and no qualifying related expenses for the 11 year old, the maximum total amount of the credit is 8,000, which is 50% of the 16,000. In this situation, you should list 16,000 for the three year old child and zero for the 11 year old child. The 16,000 limit would be used to compute your credit unless you have already excluded or deducted in part three, and that would be from the benefits. So certain dependent care benefits paid to you or you're on your behalf by your employer. Lines four and five, if filing jointly, figure you and your spouses earned income separately, enter your earned income on line four and your spouses earned income on line five, earn income for figuring the credit generally includes the following, one, the amount shown on form 1040 or 1040 SR, line one or form 1040 NR, line one A minus any of the amounts A included, so it says minus any, A included for a scholarship or fellowship grant that wasn't reported to you on a form W2, B excluded as foreign earned income, including any housing exclusion on form 2555 line 43, C also reported on schedule SE form 1040 because you were a member of the clergy or you received $108.28 or more of church employee in him. I laugh because it's such a small number and they haven't really adjusted for inflation for such a long time and they put pennies in it, which is just kind of funny, but D, I received the work performed while on inmate in a penal institution or E, received as a pension or annuity from non-qualified deferral compensation plan or a non-governmental section 457 B plan, this amount may be reported in box 11 of form W2, if you received such an amount, but box 11 is blank, contact your employer for amount received as a pension or annuity. Okay, line four and five continued number two, the amount shown on the schedule SE form 1040 line three minus any deductions you claim on schedule one, form 1040 line 15, so that's gonna be like a schedule C income, which should still be a qualifying item for your income. If you use other optional method of figuring self-employment tax subject to deduction, you can claim on schedule one line 15 from total of the amounts shown on the schedule SE line three and four B, if you receive church employee income of $108.28 or more, subtract any deduction you claim on schedule one, a line 50 from the total, so on and so forth, that's a special case. Number three, if you are filing schedule C form 1040 as a statutory employee, the amount shown on line one of the schedule, so the statutory employee is kind of a specialized situation. Line four, non-taxable combat pay, if you elect to include it in earned income. So we've got that combat pay and if you're members of the military, then we try to get a benefit by not having to include combat pay in income, so they don't have to pay taxes on it, but sometimes when calculating these credits, they want to have the income so that you can have access to the credit because you need some income for the credit calculation oftentimes, so you might be able to then pick up the combat pay here even though it's not included for income tax calculations. However, including this income will only give you a larger credit if your or your spouse's other earned income is less than the amount entered on line three. To make the election include all of your non-taxable combat pay in the amount you enter on line four, line five of your spouses if filing jointly, that combat pay issue will typically be shown on the W-2, so you kind of see that. So lines four and five continued, if you are filing jointly and both you and your spouse received non-taxable combat pay, you can each make your own election. In other words, if one of you makes the election, the other one can also make it, but doesn't have to, the amount of your non-taxable combat pay should be shown in box 12 of your form or forms W-2 with a Q, so you'll see it on the W-2 form. Tip, you can choose to include your non-taxable combat pay in earned income when filing your credit, even if you choose not to include it in income for the earned income credit, the EIC. So we have the same kind of issue with the earned income tax credit where we're trying to say, we're not gonna require you to record it in income, but you might want it as a calculation for the EIC, the earned income credit, and now we have the same kind of situation here. So you can kind of use combat pay where it helps you and not have to use it where it doesn't help you and where it certainly doesn't help you is having it as income when you're calculating the income tax generally. So there's that. So caution, you must reduce your earned income by any loss from self-employment. If you or your spouse was a student or disabled, your spouse's earned income, your spouse was a full-time student, if he or she was enrolled in full-time student at high school for some part of each of five calendar months during 2021. So if they were a full-time student, then you might be able to still be able to take the deduction possibly, even though a spouse doesn't have earned income. And typically the reason for paying someone is so someone can work, but now you're assuming they're a student. So that's kind of like work. So then you might be able to qualify. So the months needed to be consecutive. A school doesn't include an on-the-job training course, a correspondent school, or a school offering courses only through the internet. Your spouse was disabled if he or she wasn't physically or mentally capable of caring for himself or herself, figure your spouse's earned income on a monthly basis. For each month or part of a month, your spouse was a student or was disabled. He or she is considered to have worked and earned income. His or her earned income for each month considered to be at least $250 or $500 if you had two or more qualifying persons at any time during 2021, enter that amount on line five. If your spouse also worked during that month, use the higher of $250 or $500 or his or her actual earned income for that month. For any month that your spouse wasn't a student or disabled, use your spouse's actual earned income if he or she worked during the month. If you or your spouse was a student, continued your earned income. These rules for a spouse who was a student or disabled also apply to you if you were a student or disabled. For each month or part of a month, you were a student or disabled. Your earned income is considered to be at least $250, $500 if you had two or more qualifying persons at any time during 2021, enter the amount on line four. So now we've got the two spouses, of course. So we have to do these calculations and consider if you were a student and so on for both of them. So enter that amount on line four. If you also worked during that month, enter the higher of $250 or $500 or your actual earned income for that month. Both spouses were students or disabled. So now you have a consideration where both of them, you're married and both of them were students, for example, if in the same month, both you and your spouse were either students or disabled, only one of you can be treated as having earned income in that month under these rules. Special situations, if you are filing jointly, disregarded community property laws in, I'm sorry, if you are filing jointly disregard community property laws in determining the earned income of an individual, if your spouse died in 2021, then you could see publication 503 for more information there.